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MUMBAI: Isuzu Motors Limited, the $19.8 billion Japanese automobile manufacturer is in talks with Hindustan Motors and US car maker General Motors India to manufacture on contract its pick up trucks and Sports Utility Vehicles, before it sets up its own Greenfield facility in the country.

ET learns, the decision on the contract manufacturing is expected to taken in the next few months and Isuzu Motors, which has already launched the DMAX pick up truck and MU-7 SUV in Hyderabad and Coimbatore is expected to begin assembly of models within 12 months, if the agreement is arrived at.

Shigeru Wakabayashi, deputy MD, Isuzu Motors India told ET: "It will take three to five years, for our own manufacturing facility to become operational. Till that time, we want to test the Indian market with our small operation. We are in talks with several players for contract manufacturing and a decision is likely to be taken shortly."

When contacted, Uttam Bose, MD & CEO of Hindustan Motors Ltd confirmed the development and said, "Talks are on and if both parties arrive at an understanding, then our relationship may fructify in the coming days."

Isuzu India is working closely with a Mitsubishi team located in Chennai to plan its India strategy. Mitsubishi globally has 9.2% stake in Isuzu Motor Limited.

People close to the development on condition of anonymity say, "Mitsubishi has a stake in Isuzu and it is helping them set up a base in India. Since Mitsubishi deals directly with HM, there is a very strong possibility of Isuzu trucks being assembled at HM's plant in Chennai. But then GM is also a global partner of Isuzu, and with both GM-Isuzu planning to join hands to develop a pick-up truck, India could well play an important base. Both options are open."

GM India's MD Lowell Paddock said, "Isuzu is a global partner of GM and if any product or collaboration takes place in any market, we will announce. We don't have anything to announce for the Indian market."

Interestingly, on 10 January 2013, the board of Hindustan Motors had come out with a scheme of arrangement which could lead to demerger and transfer of its Chennai car plant, as a going concern to its fully owned subsidiary, Hindustan Motor Finance Corporation Limited. The remaining business and interest of Hindustan Motors Limited, which belongs to the C K Birla Group will continue to be managed by Hindustan Motors.

The board gave a nod to the scheme providing for segregation and realignment of Chennai car plant business unit and other business units (its Uttarpara in West Bengal and Pithampur in Madhya Pradesh) in two different entities to enable them to pursue their respective growth plans.

Hindustan Motors has been manufacturing/ assembling and marketing, the Japanese car makers models from its Tiruvallur plant near Chennai, under a technical collaboration with Mitsubishi Motor Corporation Since 1998. There is no equity participation, the entire facility and the plant belongs to Hindustan Motors.

The HM plant in Chennai has a capacity of 12,000 plants per annum, and since it has no equity participation from any other party, it has ample capacity for a third party like Isuzu to manufacture or assemble pick up trucks or SUV.

Wakabayashi says India at present is the most important market for headquarters and has a potential to make up for 10% of Isuzu's global volumes by 2018. "There is no other market in the world, which is expected to grow at a pace that India will. We expect the pick up truck market to double in the next three years and grow five fold this decade and we want to have a strong base here," the deputy MD said.

Just like the car market, Wakabayashi forecasts, the demand to shift from small commercial vehicle (0-2 tonnes) to pick up trucks going ahead (2 tonne -3.5 tonne) market. "We don't want to enter the sub-two tonne mini truck space. Our strength lies pick up trucks like DMAX with a strong diesel engine, we think the market will graduate," added Wakabayashi.

Since DMAX pick up truck is imported as completely built unit, it is priced at 10-15% premium of Tata Motors Xenon and Mahindra & Mahindra Genio, with the plans of assembling the truck in the future, the price is expected to be rationalised. The company's MU-7 SUV competes against Toyota's Fortuner. The company will gradually expand presence across the country once the assembly operation is finalised.

ET had reported in July 2012, that Isuzu Motors is in talks with Andhra Pradesh and Tamil Nadu government for 1,00,000 unit plant, which is expected to be set up with an investment of over Rs 1000 crore. Wakabayashi declined to share financial information but said plant will come up by 2015. The company is already in discussion with dealers and vendors to build its marketing and supply base in India.